2 FTSE 250 value stocks I’d consider buying for my ISA

Hunting for value in a rather expensive market? Paul Summers has a couple of suggestions.

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Looking for value in what still appears to be a rather expensive market? Here are a couple of stocks from the market’s second tier that, while rarely making the headlines, could be decent additions to any price-conscious investor’s ISA portfolio.

Under the radar

£3.3bn cap RPC Group (LSE: RPC) specialises in plastic product design and engineering. It’s unlikely to get your pulse racing but that can be a good thing when it comes to investing.

Since breaching £10 back in October, shares in the Rushden-based business had lost roughly 20% in value before today. While nothing can be guaranteed when it comes to the markets, I suspect this morning’s pre-close trading statement for the 2017/18 financial year could help to arrest this fall.

According to the company, trading has continued to be positive since it last updated investors. Full-year revenue is now predicted to have grown “significantly” from that achieved in the previous financial year through a combination of organic growth, the price of polymer, favourable exchange rates and contributions from acquisitions. Profits are likely to be “in line with management expectations“. 

With the impact of plastics very much in focus in recent weeks, RPC commented that it continues to work with its supply chain to “ensure positive outcomes for the environment” and develop products that “can be easily recycled at the end of their life“. The company also said that it looks forward to engaging with the UK Government in light of the latter’s recently-announced Deposit Return Scheme on single-use glass and plastic bottles. 

In other news, RPC confirmed that — through the closure of 22 locations and relocation of 300-odd production lines over three years — the integration of acquisitions Promens, GCS and BPI was now “substantially complete“. It is hoped that the recent purchase of packaging specialist Nordfolien will also support future growth. Acquisitions are “an important part” of RPC’s strategy, according to CEO Pim Vervaat and the company “remains excited by opportunities in the ongoing industry consolidation”.  

With analysts estimating earnings per share growth of 35% before today, RPC’s stock trades on 11 times earnings. Taking into account today’s update, the decent (and likely well-covered) 3.8% dividend yield forecast for 2018/19 and improving free cash flow, that looks pretty good value to me.

Going cheap

Another FTSE 250 constituent that appears to offer good value at the moment is Vesuvius (LSE: VSVS). 

A “global leader in molten metal flow engineering“, the £1.6bn cap released a bullish set of full-year numbers at the start of March, highlighting strong performance “across all regions and business units“.

Thanks to growth in its steel and foundry end markets, underlying revenue rose 12.5% to £1.68bn in 2017 with trading profit climbing 16.1% to just over £165.5m. The latter is the highest achieved since Vesuvius listed on the market.

Having saved £16.2m through restructuring over 2017 — mostly in its Flow Control division — Vesuvius chose to announce another cost-cutting programme on results day, one that would target £15m of annual savings by 2020 in its other businesses.

Right now, you can pick up stock in Vesuvius for 13 times earnings based on analysts forecasts for the full year. Dividends have wobbled in recent years but there’s a 3.2% yield pencilled in for 2018. With free cash flow looking healthy and net debt falling by 14% to £274.3m over the reporting period, I think the stock is worth a closer look.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended RPC Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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